• Molecular Ideas

Implanting Transparency into Surgical Costs with Kermit

Updated: May 9, 2021

Welcome to Molecular Ideas and thank you for sharing your time with us. Creating consistency and transparency in surgical costs is a herculean task due to the many stakeholders involved the limitations of traditional systems management. Today, we explore how Kermit is partnering with hospitals and health systems to reduce costs by bringing transparency to surgical costs for implantable medical device through cutting-edge analytics and consulting.


Today, we will be talking about Kermit.

No, not that one – but the company Kermit is about connecting different stakeholders in a hospital and empowering them with data to lower hospitals’ spend on implantable devices, also known as physician preference items (PPI). I had the honor of sitting down with Rich Palarea, CEO & Co-Founder of Kermit to discuss the critical need for creating surgical cost transparency, its implications for patients, and how his company captures value for hospitals. (Yes, we also discussed their name.)


The Room Where It Happens

Odds are, we all know someone who has had elective surgery. Hip and knee replacements alone comprise nearly 1.2 million surgeries per year, with the number expected to keep rising. Those who have gone through it have described them as straightforward procedures with predicable pre- and post-operation consultations that minimize risk and classify your specific needs as a patient. For what it’s worth, I’m a firm believer in the saying ‘all surgeries are minor – until they’re done on you.’


What is surprisingly less predictable is the cost of these surgeries and others like them.

Let’s consider what it takes to obtain a successful outcome. Regardless of whether you are in a non-emergency situation or are reasonably insured as a patient, you need a surgeon and clinical support staff, a clean and safe operating room, and the various implantable surgical devices needed to complete the procedure.


One of these things is not like the other.


The surgeon’s key goal is to ensure the best possible outcome for the patient. This is not only a matter of skill – it is also heavily dependent on matching the appropriate device to a patient’s needs in real time. Pre-operation procedures like X-rays and blood analyses can only tell you so much. When you’re working inside a patient in real time, you need to be able to adapt quickly and appropriately. In addition to the surgeon and clinical staff, there is often a medical device sales representative on-hand to help a surgeon identify the surgery’s particular needs and provide the appropriate device – such as a hip implant better suited to a patient’s unique anatomy. Additionally, a sales representative may also on-hand for certain cardiac procedures and other types of surgeries.


Given that sales representative is an expert on their devices, they can be an invaluable ally to surgeons. However, they also have a fiduciary responsibility to their company. The operating room is a unique theater to peddle life-saving wares, especially when a patient is on the table.

Achieving positive clinical outcomes is a partnership between the surgeon and the medical device sales rep. However, surgical procedures involve a wider array of stakeholders – including hospital supply chain managers and executives – with different operational KPIs. These individuals are responsible for ensuring that practitioners have the resources to generate positive patient outcomes within a fluctuating budget.


It’s no secret that many hospitals face mounting debt. A Consumer Financial Protection Bureau report highlights that nearly half of consumers with medical debt “have otherwise ‘clean’ credit reports with no indication of serious past delinquencies”, which underscores the seriousness and significance of this challenge. As a result, hospital executives are constantly negotiating with medical device manufacturers on thousands of SKUs per contract to create spending efficiencies.


“We have really done a disservice to our hospital supply chain management. We are asking them to contract for everything from personal protective equipment to MRI machines, and we are also asking them to be experts in a highly-technical and complex categories like PPI with thousands of SKUs and new products being introduced.” Rich says.


Taking the Paper out of Payments

So, how are these real-time adjustments to your surgery tracked? How do hospitals reconcile your surgery’s billing codes against constantly updating contracts? How do supply chain managers navigate multiple complex procurement contracts in the context of your unique surgery?

More often than not, through good old pen-and-paper.


As Rich put it, “We're tracking this very costly category on a piece of paper. And we're expecting somebody in purchasing who may not have the clinical understanding of why the surgeon used a unique construct of parts to adjudicate [each bill sheet] just by looking at it and taking the word of the vendor rep that the pricing on the bill sheet accurately reflects the agreed upon contract pricing.”


Regardless of the amount of human power available, navigating this ever-changing and complex landscape puts a major operational and financial strain on hospitals that are already struggling. Fortunately, Kermit is already working with major hospital networks to create transparency that keeps medical costs low without sacrificing quality.


Their solution is two-fold. First, cutting-edge software specifically designed to allow collaboration between surgeons, supply chain managers, and executives can capture, analyze, and track surgical cost drivers with minimal human effort. By leveraging HIPPA-compliant mobile device technology, surgical cost information is transmitted quickly, securely, and in a consistent format to the supply chain managers who need it. From there, the software goes further by distinguishing the context of the surgery to account for unique negotiated conditions in each contract the hospital has.


“[With this platform], you have the ability for the supply chain manager to negotiate sophisticated contract terms to reduce costs and the application manages contract compliance.” Rich says.


However, the Kermit solution goes further. By combining analytics with consulting, they provide in-depth PPI knowledge to help the hospitals in their negotiations with the medical device manufacturers. Kermit utilizes a proprietary classification model that is able to compare like devices and provide benchmarked pricing for hospitals.


Overburdened hospitals can use the assistance and most device suppliers appreciate the advocacy and technical liaison that Kermit provides to create an efficient project”, Rich states. “Further, we’ve created an elegant way to insert our process into a delicate workflow and achieve savings without requiring surgeons to choose between the low-cost vendor or their favored device.”


How it Happened

Kermit implements their software and services for the benefit of the hospitals, without changing the hospital’s existing process or limiting a surgeon’s choices when it comes to preferred vendors, devices, or technology.


“Many hospital consultants will look at your process and make changes, or limit a surgeon’s choice, in order to reduce PPI spend. We know we can derive savings without doing any of that, and it makes implementation into hospitals very easy and allows surgeons to keep to doing what they do best.” Rich says.


The beauty of this solution is that it doesn’t require stakeholders – surgeons, supply chain managers, executives and sales reps – to change their workflow. Rather, it recaptures value on the back-end to ensure that everyone is playing by the same rules. This eliminates, in many cases, the need for surgeons to be concerned about device costs and make choices strictly in the interest of patient outcome. Rich and his team brings experience from the medical device industry, as well as an interesting analog – shipping.

“We're a tech-enabled service in the truest sense of the word. My two co-founders approached me as former medical device reps and I was so taken by their vision that I sold a successful company I had been running for over three decades. The company was proficient and successful in negotiating contracts for some of the nation's largest shippers using FedEx, UPS, and DHL. And I did it by demystifying how the pricing works and then keeping the transportation companies honest and the way that they bill.”


When you think about it, the two industries aren’t that far apart – you have a handful of providers able to render acceptable levels of service and a lack of transparency around what you’re charged. Put another way, when was the last time you negotiated the price for sending a package or looked at the underlying fees that made up that price point?


Kermit’s real-time analysis and data-driven platform also has several other benefits. In addition to creating a more secure, HIPPA-compliant procedure than handing off papers, the platform is linked to the FDA’s device and implant recall updates to help provide hospitals an edge in providing care.


“Imagine you have a patient with a recalled pacemaker due to premature battery depletion. You're going to have to get them back in for surgery.” Rich says. “As a patient, I think you'd rather hear about that from your doctor immediately when the recall is released than from an attorney or the media later. Because we collect patient data and implant usage, we are the natural place to make that match and alert the healthcare provider.”


What’s in a Name?

I’m sure you’ve been wondering – how did Rich and his team choose the name ‘Kermit’? As we’ve discussed on the blog before, your brand name matters. It is an opportunity to convey not just what you are, but who you are and how you serve them. This philosophy is something Rich and his team took to heart as they built their software tool.


“We started to survey what was out there and everything was very stale. Other names were acronym based, and nothing had a personality. We wanted to convey the feeling that when we arrive, we take care of everything for you – we create the feeling that this complex and hard-to-manage thing is totally taken care of. Like when you were a child, and there wasn’t a care in the world.”


Closing Thoughts

Whether we like it or not, healthcare is a business, that has to balance the best possible patient care delivered at low cost. When lives are on the line, discussions around cost may seem superficial or inappropriate. However, the implications of healthcare costs on living – as well as keeping hospitals open – cannot be understated. Kermit intersects business and healthcare in the best way possible by applying metrics of accountability, transparency, and process efficiency while respecting the value of each stakeholder as a subject matter expert. In doing so, they empower stakeholders to work smarter and faster for the patients that depend on them.


You can learn more about Kermit here.


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